Indonesia anti-graft agency snares its first minister,damages president

JAKARTA (Reuters) - Indonesia’s first minister to be named a suspect in a bribery scandal resigned on Friday, becoming the highest profile victim of an increasingly aggressive push by the country’s anti-graft body to take on rampant institutional corruption.

It is another blow to the reputation of President Susilo Bambang Yudhoyono, elected to combat graft, and to his Democrat Party which faces an uphill struggle to hold on to power in elections in 2014.

The case, say analysts, also further damages the president’s hopes of picking his own successor when his second and final term ends in 2014.

“Too little time remains for the party to rebuild its credibility before elections. At the party’s current rate of decline, it may prove unable to nominate a presidential ticket in 2014,” said Kevin O‘Rourke, an independent risk analyst.

Youth and Sports Minister Andi Alfian Mallarangeng, a former close aide to the president and a senior member of the Democrat Party, is the first minister to be named a corruption suspect.

He joins the bulging ranks of current and former officials to find themselves the target of probes by the anti-corruption agency as it tries to tackle what many see as one of the biggest hurdles to faster growth in Southeast Asia’s biggest economy.

The resignation comes just after corruption watchdog Transparency International marked Indonesia down to 118 from 100th place in its 2012 corruption index of 176 countries.

Yudhoyono’s popularity has slid this year after his party treasurer was nabbed for graft in an infrastructure bribery case while on the run in Colombia. The ex-treasurer, jailed for nearly five years, has named Mallarangeng, the party’s chairman and one of Yudhoyono’s sons as allegedly involved in hundreds of millions of dollars of kickbacks for sports facilities.

The case also underlines the push to catch top officials by the anti-graft body, often referred to by its Indonesian acronym KPK, which has so far fended off a barrage off attacks from the parliament to police to try to weaken its powers.

“We found facts and evidence of involvement,” said KPK chief Abraham Samad.

WEAKENS DEMOCRACY

Convictions in 2012 have included Angelina Sondakh, a Democrat party official, and wealthy industrialist Hartati Murdaya Poo who was a fundraiser previously for the president.

Despite the pervasive corruption, which combines with weak infrastructure and a slow moving bureaucracy to cap the country’s growth potential, a booming consumer market has been pulling in manufacturing firms to invest billions in Indonesia this year.

But it comes with risks for Western firms who face strict anti-bribery laws in their home countries but find it nearly impossible to do business in Indonesia without “facilitation payments”.

Aerospace and defence group Rolls-Royce (RR.L) said on Thursday it may face prosecution after Britain’s Serious Fraud Office (SFO) ordered it to hand over details of possible bribery and corruption in Indonesia and China. (Additional reporting by Rieka Rahadiana, Editing by Jonathan Thatcher)